HQ 561558 - Eligibility of ladies’ pantyhose for duty-free treatment under U.S.-Israel Free Trade Agreement - United States International Trade Commision Rulings

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HQ 561558

March 30, 2000

CLA-2 RR:CR:SM 561558 BLS

CATEGORY: CLASSIFICATION

Mr. Stefano Sciortino
46040 Casalmoro (MN) – Italy

RE: Eligibility of ladies’ pantyhose for duty-free treatment under U.S.-Israel Free Trade Agreement

Dear Mr. Sciortino:

This is in reference to your fax messages dated October 22, 1999 and February 22, 2000, concerning the eligibility of ladies’ pantyhose for duty-free treatment under the U.S.-Israel Free Trade Agreement (USIFTA).

FACTS:

You state that the yarn used to produce the imported pantyhose is a product of Israel. The yarn is sent to Italy where it is knit into pantyhose “tubes”. These “tubes” are then sent to Israel where the following operations are performed:

The tube toe is sewn.

The tube is cut on the panty portion.

3) Two tubes are sewn together.

The panty is cut in order to insert the gusset, which consists of narrow fabric.

The gusset is cut and then sewn on the panty portion.

The greige material is dyed.

ISSUE:

Whether the imported product qualifies for duty-free treatment under the USIFTA.

LAW AND ANALYSIS:

Under the USIFTA, eligible articles which are the growth, product, or manufacture of Israel and are imported directly into the U.S. from Israel qualify for duty-free treatment, provided the sum of 1) the cost or value of materials produced in Israel, plus 2) the direct costs of processing operations performed in Israel is not less than 35 percent of the appraised value of the article at the time it is entered. See, General Note 8, Harmonized Tariff Schedule of the United States (HTSUS).

General Note 3(a)(iii), HTSUS, provides that special rates of duty under one or more of the special tariff treatment programs (including the GSP) apply to those products which are classified under a provision for which a special rate is indicated in the “Special” subcolumn and for which all of the legal requirements for such program(s) have been met. For an article to be eligible to receive duty-free treatment under the USIFTA, it must be imported from Israel and be classified under a tariff provision for which a rate of duty of "Free" appears in the "Special" subcolumn followed by the symbol "IL." The pantyhose is classifiable under subheading 6115.11, HTSUS, which provides for panty hose, tights, stockings, socks, and other hosiery, including stockings for varicose veins, and footwear without applied soles, knitted or crocheted: Panty hose and tights: Of synthetic fibers, measuring per single yarn less than 67 decitex , or subheading 6515.12, HTSUS, measuring per single yarn more than 67 decitex. Articles provided for in these provisions are entitled to duty-free treatment under the USIFTA, provided that they are a “product of” Israel, meet the value-content requirement and are “imported directly” into the U.S.

Articles are considered the “product of” Israel if they are made entirely of materials originating there or, if made from materials imported into Israel, those materials are "substantially transformed into a new and different article of commerce, having a new name, character or use, distinct from the article or material from which it was so transformed." See, Annex 3 of the Agreement on the Establishment of a Free Trade Area Between the Government of the United States of America and the Government of Israel. The Agreement was approved by Congress in the United States-Israel Free Trade Area Implementation Act of 1985, Pub. L. No. 99-47, 99 Stat. 82. The basic rules of origin set forth in Annex 3 of the U.S.-Israel FTA (which are derived from section 402 of the Trade and Tariff Act of 1984) are based on section 213(a) of the Caribbean Basin Economic Recovery Act, as amended (CBERA) (19 U.S.C. 2703(a)), which contains the
origin rules governing duty-free treatment under the Caribbean Basin Initiative (CBI)

On December 8, 1994, the President signed into law the Uruguay Round Agreements Act. Section 334 of that Act (codified at 19 U.S.C. 3592) provides new rules of origin for textiles and apparel entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996. On September 5, 1995, Customs published section 102.21, Customs Regulations, in the Federal Register, implementing section 334 (60 FR 46188). Thus, effective July 1, 1996, the country of origin of a textile or apparel product is determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of Section 102.21. However, section 334(b)(5) provides that:

This section shall not affect, for purposes of the customs laws and administration of quantitative restrictions, the status of goods that, under rulings and administrative practices in effect immediately before the enactment of this Act, would have originated in, or been the growth, product, or manufacture of, a country that is a party to an agreement with the United States establishing a free trade area, which entered into force before January 1, 1987. For such purposes, such rulings and administrative practices that were applied, immediately before the enactment of this Act, to determine the origin of textile and apparel products covered by such agreement shall continue to apply after the enactment of this Act, and on and after the effective date described in subsection (c), unless such rulings and practices are modified by the mutual consent of the parties to the agreement.

Israel is the only country that qualifies under the terms of section 334(b)(5). As the section 334 rules of origin for textiles and apparel products do not apply to Israel, we refer to the 19 CFR 12.130 rules of origin, which were the rules of origin applicable to textiles and textile products before the enactment of section 334. Section 334(b)(5) makes clear that if, by application of 19 CFR 12.130, Israel was determined to be the country of origin of a product prior to enactment of section 334, the same treatment will be accorded after enactment of section 334. This interpretation of section 334(b)(5) was confirmed in a Notice of a general statement of policy, Treasury Decision (T.D.) 96-58, appearing in the Federal Register, Vol. 61, No. 148, dated July 31, 1996.

Accordingly, applying section 12.130(b), the standard of substantial transformation governs the country of origin determination where textiles and textile products are processed in more than one country. The country of origin of
textile products is deemed to be that foreign territory or country where the article last underwent a substantial transformation. A substantial transformation is said to occur when the article has been transformed into a new and different article of commerce by means of substantial manufacturing or processing. A textile or textile product will be considered to have undergone a substantial transformation if it has been transformed by means of substantial manufacturing or processing operations into a new and different article of commerce.

Section 12.130(d), Customs Regulations (19 CFR 12.130(d)), sets forth criteria for determining whether a substantial transformation of a textile product has taken place. This regulation provides that these criteria are not exhaustive; one or any combination of criteria may be determinative, and additional factors may be considered.

Section 12.130(d)(1), Customs Regulations (19 CFR 12.130(d)(1)), states that a new and different article of commerce will usually result from a manufacturing or processing operation if there is a change in:

(i) Commercial designation or identity;
(ii) Fundamental character; or
(iii) Commercial Use.

Section 12.130(d)(2) (19 CFR 12.130(d)(2)), provides that in determining whether merchandise has been subjected to substantial manufacturing or processing operations, the following will be considered:

(i) The physical change in the material or articles;

(ii) The time involved in the manufacturing or processing operations;

(iii) The complexity of the manufacturing or processing operations;

(iv) The level or degree of skill and/or technology required in the manufacturing or processing operations;

(v) The value added to the article or material.

Section 12.130(e)(1), Customs Regulations (19 CFR 12.130(e)(1)), describes manufacturing or processing operations by which an article will usually be considered a product of the country in which these operations occur. Such operations under 19 CFR 12.130(e)(1) include: (iii) Weaving, knitting or otherwise forming fabric; and (v) Substantial assembly by sewing and/or tailoring of all cut pieces of apparel articles which have been cut from fabric in another foreign territory or country, or insular possession, into a completed garment (e.g. the complete assembly and tailoring of all cut pieces of suit-type jackets, suits, and shirts).

Section 12.130(e)(2), Customs Regulations (19 CFR 12.130(e)(2)), describes manufacturing or processing operations by which an article will usually not be considered a product of the country in which these operations occur. Such operations include “Simple combining operations” See 19 CFR 12.130(e)(2)(I). Section 12.130(e)(2)(iii) (19 CFR 12.130 (e)(2)(iii)) also provides In pertinent part that an article will not be considered a product of a foreign country merely by undergoing:

“Trimming and/or joining together by sewing, looping, linking, or other means of attaching otherwise completed knit-to-shape component parts produced in a single country”

Customs has held that the assembly of goods entailing simple combining operations, trimming or joining together by sewing, is not enough to substantially transform the components of an article into a new and different article of commerce. For example, in Headquarters Ruling Letter (HRL) 954604 dated October 28, 1993, Customs held that the assembly process of women's pants in a country different from the country where they were cut, did not involve sufficient skill or complexity to constitute a substantial transformation as defined by 19 CFR 12.130(e)(v). Therefore, the country of origin was found to be the country where the piece goods were cut into specific parts and where the articles last underwent a substantial transformation. See also HRL 951436 dated July 17, 1992 (the country of origin of pants made from Taiwanese fabric, cut into component pieces in Singapore, and assembled in Malaysia, was Singapore.)

Similarly, in the instant case, the pantyhose tubes imported into Israel are a product of Italy, as the tubes are knit-to-shape in Italy. See 19 CFR 12.130(e)(1)(iii). Further, the assembly operations performed in Israel are simple combining and sewing operations including simple cutting and do not possess the requisite degree of complexity to be deemed substantial manufacturing processes for purposes of conferring country of origin status. In assembling the
component pieces, there is no great degree of skill or advanced technology is required, nor is tailoring involved. See 19 CFR 12.130 (e)(2)(iii) and (e)(1)(v), above.

Therefore, when imported into the U.S., the country of origin of the pantyhose will be Italy, where the pantyhose tubes are knit-to-shape and where the articles last underwent a substantial transformation.

HOLDING:

Israeli yarn imported into Italy will undergo a substantial transformation as a result of knitting the yarn to form pantyhose tubes. The pantyhose tubes will not undergo a substantial transformation upon importation into Israel, as the operations in Israel consist of mere combining, sewing and simple cutting operations and do not possess the requisite degree of complexity to be deemed substantial manufacturing processes for purposes of conferring country of origin status.

Therefore, as the pantyhose is not considered a “product of” Israel, it will not be entitled to duty-free treatment under the USIFTA upon importation into the U.S.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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